Agri-food Market Development C. Leigh Anderson, Nina Forbes, Marina Kaminsky, Targeted Literature Review Findings Samantha Kiel, Andrew Tomes EPAR Technical Report #393 Professor C. Leigh Anderson, Principal Investigator November 22, 2019 Abstract TAKEAWAYS While literature on achieving Inclusive Agricultural Transformation (IAT) through input market policies is relatively robust, literature on The evidence on output markets is thin the effect of output market policies on IAT is rarer. We conduct a relative to input markets, mixed, and selective literature review of output market policies in low- and mostly focused on import and export middle-income countries to assess their influence on IAT and find strategies with results that also depend that outcomes are mixed across all policy areas. We also on trading partner policy. review indicators used to measure successful IAT, typologies of market institutions involved in IAT, and agricultural policies and Market liberalization strategies have maize yield trends in East Africa. This report details our findings on been differentially applied to specific these connected, yet somewhat disparate elements of IAT to shed cash or export crops, while maintaining domestic price and quantity measures more light on a topic that has not been the primary focus of the for cereals. literature thus far. Domestic output market measures can Introduction involve direct rural producer v. urban consumer trade-offs and may be seen as The goal of this review is to assess, in a limited period of time and less of a systems investment than across the many different approaches to inclusive agricultural upstream actions. transformation (IAT), what evidence exists on the effectiveness of output market policies and strategies. At the most macro level in sub- When ICT and price information fail it Saharan Africa, this is a question of the relative efficacy of more often rests not on the intervention direct government control allocating agricultural goods (through the itself, but on uneven access to mobile phones and the internet. 1970s), to more market based allocations based on prices and quantities determined by private actor supply and demand (beginning Rankings of “inclusive transformation” with structural adjustment in the 1980s). Even with less direct depend on the choice of indicator and government ownership or setting of prices and quantities, however, are inconsistent across countries. governments influence markets via policies that either alter market prices (e.g. subsidies, exchange rates), or that indirectly affect Leveraging the gains from liberalization relies on ensuring competitive markets. market incentives and the cost of doing business (e.g. infrastructure, regulations, standards, bureaucratic costs, etc.). There is no evidence that access or the distribution of the gains will be Understanding the outcomes of any particular product market policy “inclusive” without an intentional focus on IAT will not be independent of a country’s initial conditions and on excluded groups and/or a public institutions that affect the rules of exchange. Competition policy and finance system that works to equalize public finance systems, for example, are central to the “inclusive” meaningful access. Further, the source component and leveraging poverty-growth agricultural elasticities. of public financing, as well as the Agriculture’s historically dominant role in reducing poverty, and target, affects who benefits. reducing poverty for the poorest, remains (see most recently Ligon EVANS SCHOOL POLICY ANALYSIS AND RESEARCH (EPAR ) and Sadoulet, 2018). But the maximum benefits of market liberalization, such as increasing trade (static efficiency) and production incentives (dynamic efficiency), are only realized when policy promotes a competitive market with low costs to entry and exit and good information. The benefits of economic growth, for example, are only broadly realized when public finance systems appropriately tax and spend (including investing in education and health) to support inclusive transformation. Markets alone favor those who begin with human, financial, and physical assets. We do not systematically review the institutional environments in which agricultural strategies are implemented, but Scoones and Thompson (2011) similarly discuss the importance of institutions and argue for changes in the political and societal institutions within some sub- Saharan African nations. Corruption within agriculture and land tenure systems was repeatedly cited as a constraint on agricultural development, especially with regards to inclusive growth strategies (Mgbenka, Mbah, & Ezeano, 2015). The seeming infrequency of pure product market interventions raises at least two hypotheses stemming from output (food) market interventions occurring at a more downstream point in the food chain. The first is that political-economy trade-offs within agricultural policy are more visible, both in national goals and in terms of sub-populations of winners and losers: i. within agricultural policy - In domestic markets, policies that affect food prices will have differential welfare effects on rural producers and urban (rich and poor) consumers; - In export/import markets, policies often differentiate across commodities, and support higher-valued products, products according to comparative advantage (agro-ecologically and whether a country is relatively more land or labor abundant), or simply cash versus staple products. In addition to a producer’s ability to respond to policies protecting some products relative to others, at the country level there can be income and growth versus food security trade-offs (sometimes mitigated with domestic strategic grain reserves). ii. across agricultural and non-agricultural sectors - For development policy generally, there are trade-offs between focusing on public goods investment (education, transportation and communication infrastructure, national security, etc.) versus investing in sector product markets, as well as trade-offs across agricultural and non-agricultural sectors. The second hypothesis is that resources spent on downstream markets are often seen as more of a consumption expenditure, than an investment expenditure, and that system change is less likely to occur at the end of a value-chain than the beginning of it. As a start to understanding the evidence on output market policies we have assembled a few somewhat disparate pieces: Section 1 provides general findings on output markets followed by a table and graphic of more specific empirical findings from over 75 reviewed papers. The scope was restricted to output markets, including domestic and foreign price and quantity policies (e.g. direct price or quantity restrictions, subsidies, and export tariffs) and access to market information. We built our search around the typology presented in Transforming Agriculture in Africa & Asia: What are the Policy Priorities by Laborde, Lallemant, McDougal, Smaller & Traore (2018). Section 2 includes some relevant material from a 2015 EPAR review on Maize Yield Trends and Agricultural Policy in East Africa. Although the review is focused on maize yield rather than some EVANS SCHOOL POLICY ANALYSIS AND RESEARCH (EPAR ) 2 broader measure of IAT, it has the advantage of covering some specific country policies and grey literature. Section 3 considers indicators and how conclusions depend on how IAT “effectiveness” is measured. To address different starting conditions and the challenge of counterfactuals in assessing macro-level policies, we use Laborde et. al.’s land use and birth rate criteria to cluster countries by similar levels of endowment, and their two indicators for assessing transformation from those starting positions: agricultural employment share of total employment and food security, as measured by the prevalence of undernourishment (estimates of people consuming insufficient calories). We depart, however, from Laborde et al. by emphasizing a few focus geographies and by considering a broader set of indicators that produce slightly different country groupings for comparing policy approaches to IAT. Section 4 offers six examples of institutional typologies. EVANS SCHOOL POLICY ANALYSIS AND RESEARCH (EPAR ) 3 SECTION 1: Empirical Evidence on the Effectiveness of Output Market Policies & Strategies An overview of our findings appears in Table 1. Considerably more empirical literature exists on input market than output market interventions, and of the more than 75 articles reviewed, the outcomes in all policy areas were mixed, with some policy areas notably less effective than others – importantly noting that current assessments may differ from those at the time of the publication. Table 1 is followed by our research methods, some broad take-aways from Laborde et. al. and elsewhere (researcher historical commentary without specific empirical evidence and three specific cases), and more detailed findings from the evidence review in Table 2. Table 2’s results are then presented graphically as simple pathways between the articles reviewed on output market policies or interventions and the author’s measured outcomes. Appendix A contains our search strings. Table 1: Overview of Evidence Findings Policy Area Indicators Used Results Stated Rationale Access to price Farmer income, Largely beneficial Grower information access improves information/communication output price, market knowledge and sales price because technology qualitative assessment a grower is less likely to be misled by of